COFC Rejects Sole Source Procurement to Replace Out-of-Favor Incumbent
Years ago, a relative who owned a successful tech company told me that he’d never bid on a government contract because it’s too much of a pain. I agreed that serving the Government has its complexities; however, I pointed out that the Government usually pays its bills and its work generally doesn’t dry up when the economy takes a dive.
Then a case like this one comes up. The Court of Federal Claims sustained the protest of a contractor whose contract with the Department of Veterans Affairs (“VA”) was not renewed. The contractor argued that it could not be replaced by another contractor selected by the Government through the use of an improperly justified sole source acquisition. See Utech Products d/b/a EndoSoft, LLC v. United States, Case. No. 20-315C (Fed. Cl. June 4, 2020) (“EndoSoft“). That’s all well and good—a sole source acquisition has to be adequately justified otherwise it violates the policies that favor the award of federal contracts on the basis of full and open competition. It’s a matter of fairness and prevents the misuse of federal funds.
But here, taking the VA at its word, the Government needed to get rid of a failing electronic medical records system and obtain a replacement. It had grown extremely frustrated with the software system supplied by EndoSoft that was, from its point of view, riddled with problems. Nurses reported that records they had created simply vanished without explanation. And there were other problems that the VA summarized in a list of eight deficiencies that ranged from system lags that delayed patient care to a lack of search capabilities when physicians wanted to access their colleagues’ reports. With the fourth and final option period looming, the Government investigated alternatives and eventually elected to get rid of the flawed system by not exercising the remaining option and awarded the work to a replacement contractor on a sole source basis.
In the commercial world, a decision to cut ties and find a replacement for something that’s broken seems pretty normal. Sure, feathers might get ruffled, but it’s EXTREMELY unlikely that a Court would intervene and make you throw out your replacement. However, that’s exactly what the Court did in this case when it granted the jilted contractor’s protest and rejected the VA’s sole source procurement. Welcome to our world.
Procurement through the use of full and open competition is presumed to be the correct way for Government to do business unless one of a limited number of exceptions apply. In this case, the VA relied upon the exception that applies when the property or services sought by the agency “are available from only one responsible source and no other type of property or services will satisfy the needs of the executive agency.” See 41 U.S.C. § 3304(a)(1). To properly invoke the exception, a Contracting Officer must prepare a written justification and obtain approval of it before proceeding.
The critical minimum need that the Government posited was available from only one source was a proprietary data export tool that enabled the transfer of data into the system. However, EndoSoft contended (and the Court agreed) that it had been performing the precise data export that the tool was intended to accomplish with its own tool. The Court further noted with irony that the VA’s insistence that the tool was a minimum need failed to account for the fact that the new system would not be able to process any data from EndoSoft’s system—tool or no tool.
Notwithstanding its ostensible reliance on the “one responsible source” exception to justify the sole source procurement, the protester, the Court, and the VA understood perfectly what was happening here. The VA had had it with EndoSoft’s system and wanted to make a change as quickly as it could. As much as this might be perfectly acceptable in the commericial world, “[t]he determination that a new contractor could perform better the same functions an incumbent contractor currently performs is insufficient, even if true, to justify a sole source award.” EndoSoft, slip op. at 9 (citing Aero Corp. v. Dep’t of the Navy, 540 F. Supp. 180, 208 (D.D.C. 1982).
Thus, the Court “enjoin[ed] the VA from implementing [the replacement contract] and order[ed] it to be set aside.” EndoSoft, slip op. at 12. Given the timing of the option period and the rejection of the replacement, it seems that the VA will have to endure the remainder of the contract with EndoSoft.
Taking the decision on its face, it seems that the case was decided correctly. However, it may not be the right result. If one assumes that the VA was justifiably dissatisfied with EndoSoft, shouldn’t it be able to make a change? Isn’t it particularly appropriate where, as here, the VA medical staff needs a well-functioning electronic medical records system? No doubt there are many, many facts that we can’t glean from a 12 page opinion. Perhaps the VA’s concerns were unfair and perhaps it was acting capriciously. Should a contractor be protected from agency whims?
My relative no doubt will claim vindication. His world can’t be bothered with such navel gazing.